Moelis & Company (MC) Q4 2014 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Moelis & Company Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. Now I'll turn the conference over to Kate Pilcher. Please go ahead.

Thank you and good afternoon. With me today are Ken Moelis, Chairman and Chief Executive Officer; and Joe Simon, Chief Financial Officer. Earlier today we issued a press release announcing our firm's full-year and fourth quarter 2014 results, which can be found on our Investor Relations website at investors.moelis.com. This conference call is being webcast live on the Investor Relations section of our website and archive recording will be available approximately one hour after the conclusion of this call. Before we begin, I would like to note that the remarks made on this call may contain certain forward-looking statements, which are subject to various risks and uncertainties, including those identified from time-to-time in the Risk Factors section of Moelis & Company's filings with the Securities and Exchange Commission. Actual results could differ materially from those currently anticipated. Our comments today include references to certain adjusted Pro Forma or non-GAAP financial measures. We believe these measures when presented together with comparable GAAP measures are useful to investors to compare our results across several periods and better understand our operating results. The reconciliation of these adjusted Pro Forma financial measures with the relevant GAAP financial information and other information required by Regulation G is provided in the firm's earnings release, which as I mentioned is posted on our Investor Relations website at investors.moelis.com. Following today's prepared remarks, we will open up the call for questions. I will now turn the call over to Ken.

Thanks, Kate. I'm sure you've all seen our press release. So I'm going to quickly recap our results. Then I would like to spend a bulk of my time talking about the market, provide some perspective on what we're seeing in terms of activity levels and outlook, and then take your questions, which are probably more important. So I'm pleased to report that we achieved a record full-year results in 2014 with $518.8 million of revenue, that's up 26% versus the prior year. This growth was well in excess of the 12% increase in the number of completed M&A transactions, and additionally our advisory revenue in 2014 grew at the fastest rate of our independent and bulge-bracket peers who have already reported, which I think is the best way for us to think about capturing that we must have captured some market share. Our strong revenue growth and continued financial discipline resulted in healthy earnings and operating cash flows and as we delivered on our commitment to returning excess capital to shareholders with $76.2 million of dividends paid since our IPO. We outperformed the targets that we outlined at the time of our IPO last April and significantly grew our team to position Moelis & Company for further growth. Our strong annual performance can be attributed to a few key factors. First, the general improvement in the M&A environment has led to increased transaction completions, which is demonstrated by the growth in the number of clients who paid us fees equal to or greater than $1 million. This number increased to a 130 clients in 2014 from a 109 clients in the prior year. Second, in addition to increased M&A activity, we also advised clients on a broad array of strategic alternatives and other corporate finance matters. And third, as I mentioned last quarter, I think another contributor to our performance is the continued maturation of our franchise in our brand, particularly outside the U.S. Our team in Europe had a very strong year in 2014, as our non-U.S. revenues, the bulk of which is our business in Europe, grew 37% year-over-year, and this compares to a 9% increase in the number of completed European M&A transaction. As our brand and Managing Directors mature our productivity has also improved, with revenues per average Managing Director increasing from $5 million in 2013 to $5.8 million in 2014. Let me speak briefly about our fourth quarter results. We earned about $144 million of revenue in the fourth quarter of 2014, which represented our second largest quarter of revenues since inception. It was down 7% from quarter four of 2013 which was our largest quarter on record. And the decrease was driven by fewer transaction closings primarily due to a softer restructuring environment in general. As we begin 2015, we remain optimistic about the M&A environment and the growth prospects for Moelis & Company, which leads me to a couple of thoughts on the market. I think everybody on this call is interested and I get asked in many places where we are in this M&A cycle. That's based on the fact that 2014 really was the first year where we've experienced a notable pick-up in M&A activity, which would leave me to believe we're early in the cycle. But I think you would also have to take a step back and discuss the cycles today versus previous cycles briefly, and it might help you understand where I think we are and why I'm so optimistic about the next few years. So this is the fourth M&A cycle in my career. Really the first one is in the mid-80s. Companies back then were actually focused on balance sheets and buying assets that were trading below replacement cost, a lot of those were materials deals, a lot of them were hostile, because you were buying literally physical assets at below replacement cost. You probably characterize best by team doing pickings you said it was quite cheaper to drill for oil on the floor of the New York Stock Exchange than in the field. That cycle probably ended in the early 90s right around the S&L crisis, first Iraq war. And as usual you had to wait three or four years. And the next M&A wave began in the mid-90s and that was really a growth M&A cycle. Companies were rewarded for growth and began to reach and pay premiums for expanding into business areas really outside of their core competencies. Probably the ultimate deal that signaled the end of this was actually the AOL Time Warner deal in 2000. Right after that it was interesting the utility index traded as low as it ever had, safety was very cheap, growth was very expensive. Subsequent to that the NASDAQ crashed, .com crash followed, and again M&A retreated for several years. The next cycle was a quicker one, M&A picked up in 2004, and it was really a credit cycle. Credit became very cheap and as a result there LBO saw the sponsors outbid strategic buyers with easy access to under priced credit. The under pricing [without] [ph] risk probably throughout the economy is what led to the crisis in 2008, and ultimately that cycle ended as a result of that. So today I look around the world and I think we are in a new cycle and it's the beginning what I think is a long cycle that will led to a lot of M&A, but I believe we are in a disinflationary or possibly even a deflationary environment, where it is very challenging for companies to achieve significant top-line growth. So companies are focusing on taking out costs and they're also interestingly upgrading the quality of their cash flows and their balance sheets. As a result, M&A activity is heavily driven by creating efficiencies. Companies are looking at every line item on their financial statement to identify where they can save costs. The three primary lines are cost of goods sold, SG&A, and taxes, and I think instead of looking it in versions as a unique event, if you look at it as just a necessity when you're looking throughout your income statement to reduce cost, you'll see the taxes cannot be ignored. As we saw last year there were number of large-cap transactions driven by cost savings, much more so than finding revenue, synergies, or entering new businesses. And large-cap deals tend to be a precursor to broader activity, and I think you'll see that in this cycle. The concept of disinflation or deflation is far into most CEOs and many boards and I think we're first coming to talk about it very actively now, although I think companies have been acting on it in the past year in order to get their companies positioned. I think we will have a steady and improving cycle ahead, as the gravitational pull of deals which result in cost synergies really attract companies to do transactions that they almost have to do in order to stay competitive in a very, again disinflation and technologically very productive time when prices are under pressure. So I've previously mentioned that this cycle was unique and that we could also see active restructuring environment, given record new debt issuance in recent years. I think that rings true now more than ever. As in the last six months we've seen a dramatic divergence in how the market values different quality cash flows and its evident when you look at investment grade bonds versus high yield bonds. I think companies with high quality cash flows will access the M&A market and drive efficiency and growth, other companies with poor quality cash flows, facing a deflationary environment and pricing pressure, will likely be calling on restructuring teams like ours, which just for a little advertisement was named the Global Restructuring Advisor of the year by IFR Magazine. So the M&A market improving and a potential restructuring market brewing, we see a compelling opportunity for our firm to continue to build our team. In January, this year, we promoted four of our Advisory Professionals to Managing Director, one of them joined us as an associate, which is new for us, as a young firm, but it demonstrates our ability and our goal to develop own grown talent over long periods of time. As we mentioned last quarter, we exceeded our hiring plans in 2014, due to a recruiting tailwind following our IPO, and a more attractive hiring environment in general. We ended the year with 94 Managing Directors, which is a net increase of 8 from the end of 2013. In terms of total bankers we ended the year with 381 bankers, up from 317 at the end of 2013, and our bankers are now based in 17 offices around the world with our newest Washington DC office having just opened. As we move into 2015, I think you can expect to see us add headcount in our private funds advisory business, where our team has already launched four fund raisers. We are also focused on expanding our strong team in Europe which ended the year with 17 Managing Directors and just this week we had a Managing Director start in our Frankfurt office. We continue -- we tend to continue hiring opportunistically and making investments that will grow the earnings power of our franchise and drive long-term value for our clients and our shareholders. With that, let me turn the call over to Joe to discuss the financial results in more detail.

Thanks, Ken. I'll take a few minutes to highlight some key points and metrics contained in the press release. We present our results on a GAAP and an adjusted pro forma basis. The adjusted pro forma financials reflect two types of adjustments. The first type of adjustment with which you should now all now be familiar, removes the impact of charges associated with the firm's IPO. The second type of adjustment presents our results as if all outstanding Class A partnership units have been exchanged into Class A common stock. The effect is to simply - simplify or make more transparent our management results by one, avoiding the noise in shares outstanding that will arise each time there is an exchange of units for shares such as the case with our recent secondary offering. And two, applying the firm's corporate effective tax rate, as if a 100% of the firm's income is subject to corporate tax. You can find a detailed account of these adjustments which are reconciled to our GAAP financial results in the press release. Compensation and benefits expenses on an adjusted pro forma basis were $271 million for the annual period and $75 million for the fourth quarter, resulting in a compensation expense ratio of 52% for both the full-year and quarterly period. As a remainder, we report a lower than targeted total comp run rate expense due to the equity vest acceleration which we have discussed in previous quarters. You should expect to see equity amortization expense increase in 2015 after we issue a new tranche of annual equity compensation in the first quarter. Accordingly, our compensation expense ratio should increase with this new tranche of equity amortization. 2014 adjusted pro forma non-comp expenses were $90.1 million, which is up from the $76.3 million reported in 2013. The increase over the prior year reflects costs incurred in connection with more business development and hiring activity. We also incurred for the first time in 2014 costs in connection with operating as a public company. Despite increased expenses, our full-year non-comp ratio decreased from 19% in 2013 to 17% in 2014, given the growth in full-year revenues and was in line with our long-term target of approximately 15% to 18%. For the fourth quarter 2014, non-comp expenses were $22.1 million as compared with fourth quarter 2013 of $22.7 million, resulting in a 15% non-comp ratio consistent with the prior-year period. On an adjusted pro forma basis 100% of the firm's income is tax at the corporate effective tax rate of 40.5%. The resulting net income was $1.72 and $0.51 per share for the full-year and fourth quarter of 2014 respectively. Consistent with our commitment to our capitalized model, we returned $76.2 million to stockholders since our IPO, to both regular and special dividends, which aggregated to $1.40 per share. On February 3, our Board declared a quarterly dividend of $0.20 per share to be paid on March 6 to stockholders of record as of February 20. This dividend is consistent with our previous regular quarterly dividends. Our Board has also authorized a $25 million share repurchase program with no expiration date. From a capital management perspective we believe it is prudent to have such a program in place and will be sensitive to our limited flow. We intend for the program to be opportunistic and measured in nature as it is intended to be used initially as a means of neutralizing the basic share count creep that would otherwise arise from employee RSU vesting. You may recall that employee's vest ratably over a four-year period from the date of grant while MDs vest ratably in years three, four, and five, from the date of grant. The first anniversary of our IPO and the first tranche of employee equity vesting is coming up in April. Finally, we ended the year with a strong financial position with $237.9 million of cash and short-term investments and no debt. And I'll now turn it back to Ken.

Thanks, Joe. I'll just wrap this up by saying that we are very optimistic about 2015. The market continues to improve and our dialogue with clients remains robust. We feel we are very well-positioned going in the year and we have three key areas of focus which allow us to drive further growth and continue to build a long-term franchise. First, we remain intensely focused on attracting and retaining the highest quality talent. Second, we create a strong one firm culture that maximizes how our talent delivers that quality to our clients. And third, if we get numbers one and two right, and we maintain our focus and energy on our clients, we will continue to develop the most improvement asset of firm like us has and can keep which are deep long-term client relationship. With that, we'll be happy to take your questions.

Yes, thank you. We will now being the question-and-answer session. [Operator Instructions]. And the first question comes from Ashley Serrao from Credit Suisse.

Ken, I was curious what are you hearing from your energy clients, basically how is the U.S. thinking about oil prices and planning for volatility there on the horizon?

Look, it's interesting they fall into buckets depending on how prepared they were on balance sheet. I think you have some preparing to take advantage of trouble. You have some just hoping it goes away I think. Then you have a third set that come into this probably over levered and are going to have real issues getting through it. And the interesting part, Ashley, I think it's going to take a while because some of these, you have hedges on, I think it will take a while for people to see the real results of a lower oil price because people are hedged to a certain period of time. But I will say this, I don't, I expected, it's not going to be an immediate unless you get into trouble, I mean that's a restructuring business a little like the fire department business, I think it's getting trouble and there is an immediate call. In the M&A side, I don't expect immediate movements. I don't expect companies, as I said on an earlier call, I continue to believe M&A is driven by the seller; people tend to talk about it as being driven by the buyer. My belief is it's always driven by the seller. And I don't expect to see a large amount of people immediately whose stock was trading at X, go into the M&A market and sell when their stock is 25% of X or 50% of X. So I think, I think it's going to trigger a lot of activity, a lot of thinking, and it might take a while to play-out.

Okay. And then maybe could you please speak to the recruiting environment and just your overall plans for perhaps expanding MD count in 2015 be it sector or geography?

We think it's a decent market, about average Op - there is some good people available and we have a pretty good backlog of people we're talking to. I don't want to overstate it because you're not done till you're done. But we think the environment for hiring people is good. The pressure on the banking system persists at least in the quality of life of being a banker at a large firm. And so we think we still have an opportunity to continue to expand pretty significantly.

Okay. And then finally one for Joe. I was just curious what was the awarded compensation for the year?

We don't disclose awarded comp.

Okay. Thanks for taking my questions.

Thank you. And the next question comes from Vincent Hung with Autonomous.

I know you won’t talk about the split between M&A and restructuring revenues but what do you think moves the year-on-year growth for restructuring?

Well, let's talk about the market in general, and we have a pretty big group, so I think that's probably a decent way to measure it. We think the market in restructuring as a whole might have been down 10% or more. And look I think our group and I do think it might be more - it's hard to measure because it was a lot back-ended. The last two quarters, including our fourth quarter, there just wasn't a lot of new restructuring business to be had. Again the energy crisis really happened in time for anybody to get hired. And I think our group has done a very good job. Look we are -- I think we are the best group on Wall Street and I think they probably did a little better than the general environment. So I would say I thought it was across the street down at least 10% on restructuring.

And do you think fourth quarter last year or 2013 was perhaps a tough comp maybe there is some restructuring revenues back-ended?

For all year you're talking about in particular.

Yes, sorry.

The fourth quarter was a very significant I think decrease in restructuring revenue across Wall Street, it was just wasn't active. Our M&A business was very good and look $144 million is a lot of revenue. I think, if you look at our last year fourth quarter, I did -- I kind of try to say this in other calls earlier in the year that adding percentages to each of our quarter because we did well in the first, second, third. We did have a very large fourth quarter given the size of our business last year. And so we are pretty proud of our $144 million, we just happen to have a very large fourth quarter last year to comp against.

Okay. And on the MDs I think the net adds were about eight. But I think I counted externally you probably hired about 14 last year. Can you just give us a bit of color around the attrition, if that’s just natural attrition?

Yes, most of it’s natural. But I think some of it as we approached our IPO I think we started to talk to people about finding roles outside the industry. I mean, we tried very hard to give people a signal, and then help them, and some of those people found roles outside of our firm that were kind of told that they would be better off to find roles outside of our firm. So I actually think again there's people lives here that I don't want to impact but I would say very few of the attrition was unplanned attrition.

Okay. And just lastly in the latest presentation you got on the website you don't seem to communicate the long-term financial targets anymore that you laid out at the IPO. Are they still valid, which is the rev per MD target of $6 million to $9 million?

Look, we said at the IPO, the IPO is a unique event. This is a impossible business to give quarterly guidance. We don't run the business that way. We don't - as I said it's hard to get our clients to close deals in line with the way the analysts are projecting our quarters they sort of do it they want to do. So we don't run it on a quarterly basis and those numbers are what -- look we believe in those numbers, we laid them out at the IPO, we're just -- we've said we don't want to get into a guidance method and just not good for how our people feel about their advice, which should be giving the best advice to their clients and then the financials will fall out. So we are not, we just not updating our guidance, and I think we made that clear on the IPO that we would not update guidance.

Okay. Thanks for taking my questions.

Thank you. And the next question comes from Devin Ryan with JMP Securities.

Thanks, good afternoon. So Ken, I know you've spoken in the past about slow M&A recovery maybe being good for the business and just as it enabled you to get in front of clients as build brand awareness with clients or maybe otherwise were previously working with someone else. So when I think about the stats you provided $130 million plus clients this year. Can you give any perspective around how many of those are kind of new clients versus repeat and I was trying to get some additional perspective around the level of success we're having making new relationships and winning business with newer clients?

I can't break that off you, but I could tell you we're up 26% on revenue this year and not of a small base. And so I think that tells you the success. We believe and I might I'm not sure I meant slow I think it's a solid but steady and long-term recovery in M&A. I think it's just a good solid environment. I think what I didn't everybody to do was let there is going to be some very large transactions that gets people a little wired up, but underneath at all it is a solid strong and I think long-term recovery. And for us to be at 26% on this year and look we feel very good about the amount of things we're in right now. I think it's that what demonstrates that we feel like our brand and our image gets better around the world, and like, as you said, we now have seven years of meeting with certain clients and next year we'll have eight years and those clients like the way we deliver our advice, they like the one-firm approach, and that's what leads you to have 26% revenue growth and I believe it’s working very well.

Got it. Thanks. And that's well coming out kind of when the firm was created in a couple of years, if years are going to following them, but that's helpful. Thank you.

I think I did talk to you in 2010 or 2011 itself, but I think we're in a, I call solid now.

Yes, absolutely good. And then just with respect to kind of the fee schedules and that's may be another area where it seemed liked in the past there were some opportunity to expand fees and I know you guys have had some pretty good success with ratchet. So is there still an opportunity there? Do you kind of feel like you are where you want to be in terms of overall fees and fees related to your side et cetera?

I think the fees, just we've got few, I think the fees are moving up slightly as the Street gets busy. But I think that we're going back to earlier part of my presentation I think we're in a disinflationary world and people are watching every cost they can. So I think the fee levels are moving up and probably the headwind against that is a bunch of corporate clients that really are watching their -- watching their expenses carefully we wish they watch other expenses more carefully than ours, but they do.

Got it, thanks. And just lastly the internal promote I know that you guys spoke about the importance of kind of cultivating talent internally in expanding the firm that way in addition to external. So is the four this year is that kind of a reasonable number to think about I'm just looking at the growth of the company years that if you look at internally what you have that's a pretty good way to think about what it could be over the next several years or how should we think about our internal promotes over the next several years, okay?

Devin, I got a bunch of SVPs that are listening to that answer very closely right now. I would say that's a way a good way to think about. I mean obviously it will fluctuate around that depending on our talent, but we really hope that's continuing goal. Those are great investments for the firm and you tend to have and hold-on to those people for long periods of time and it's really good for the culture. So that is the goal I can't -- I can't it will fluctuate but that's the goal.

Okay. I appreciate it and congratulations on all the achievements this year.

Thank you.

Thank you. And the next question comes from Brennan Hawken with UBS.

So quick one on some Devin touched on their with the ratchets and the fees just but making it may be a bit more granular we are all continuing to refine our models for you guys given the imminent operating history. Was there any reason to think that there was any kind of noise or non-standard components to the fee rate this quarter?

No, on this quarter in fact probably the one transaction that slipped out of a good ratchet but the I'd say no this quarter was I would call extremely standard. I think.

Okay, great. So we got a clean example here this quarter. That's helpful. And then also thinking about --

Clean by the way, when I say clean I'm sure somewhere in there somebody hit a price that hit but it was nothing that I can recall so it was nothing material -- nothing that I think it was material.

Understood. And then it seem like it was an approval of a small buyback this quarter. I think that was new but given sort of limited liquidity in your stock I just sort of curious if you could help to understand the logic behind that?

Joe. Joe, go.

Yes. So I think the idea is that again we have a relatively small amount of employee equity that will become vested legally that will hit basic share account. And so from time-to-time we're talking about in the area of 100,000 shares to 200,000 shares that we would have the ability to enter the market and ultimately defuse or to neutralize that share count increase.

Okay.

And we're in a funny position where we do want to keep our share count flat, but we also don't want to destroy the limited float. And so we're trying to figure out we have a strong balance sheet, we're maintaining that so that when we do have enough float we can neutralize the shares that are vesting. But its -- look we've said to people we're going to, our target is to keep our share count flat and yet we do not want to destroy the float. So it's going to be interesting balancing act as we try to do both.

Yes, yes, not I don't envy you on that front. And then last one from me Joe, you sort of referenced it a bit in earlier remarks, but is it still right to think about a roughly 200 basis point lift to the comp ratio as we get another year away from the IPO?

Obviously, there are number of factors that affect that. Revenue is one, our hire -- what happens with new hires is another. But I think as a broad comment I think that's probably a reasonable place to be.

Okay. Thanks for all the color.

Thank you. And the next question comes from Joel Jeffrey with KBW.

Just Ken, just in terms of the M&A cycle you described, just curious I mean what specific verticals you expect to be the strongest in this type of environment and is that in anyway impacting where you're looking to recruit?

That's funny. I see it across the board. I think if you realize if you ever look back and you kind of analyze all these the M&A that's going on -- and probably if you put taxes in there might explain you why people are so focused on taxes. It's -- to get a dollar through your income statement down to the bottom-line without the growth and it's interesting. I think there was a trial. So the other day on how overly optimistic the Federal Reserve has been in their projections at the beginning of the year. So every year we come out with sort of that's going to be a 4% GDP year and it ends up being a 2%. And my suspicion is that most company managements know they're facing a 2%, and think the world thinks they got a 4%, and that's a big difference. So what I think you're seeing a desire to take out those marginal costs in the income statement across all industries, well sorry, I get -- look I think the tech sector has growth. And so you don't see cost synergy mergers in the tech sector. That is different let's put that aside and may be biotech for the same reason but every other business where your income statement looks more normal toward cost of goods sold, SG&A, and taxes, I think the -- as I call the gravitational pull of looking at your competitor, I think that's why you're seeing so many number once merge with number twos or twos looking at three. You're looking at big companies and dominant positions attempting to put themselves together and one of the reasons is in the size of the cost synergies makes a real difference when you do that versus just buying some smaller company it doesn't move the dial on cost synergy, might change the revenue line -- growth line if you were in a growth economy. Anyway, so I think you're seeing it really across the board outside of a couple of sectors that are still in an unusual growth mode.

Okay, great. And then just lastly from me, you touched a bit on the private funds business and I think you said that they'd launched four funds this year. Just wondering when the timing was of that and kind of what's your outlook for that businesses going forward?

Look, the private funds team really got their feet on the ground here as a Group in August mid-summer, might in late July. So remember it had only five, five-ish months, five, six months. They had four assignments in the market and I know they're actively talking more. I do think I talked about the private equity reallocation trade going on, I think it's strong. I think in a search for return people are allocating to private equity again. They're actually allocating to new teams again and we're pretty excited about it. Our firm has always had very good relations with private equity and done a lot of business with them. So putting that team together with our knowledge and relationships to private equity has been very effective and we think it will continue to be effective.

Great, thanks for taking my questions.

Thank you. And the next question comes from Alex Blostein with Goldman Sachs.

Quick question, Ken for you, based on your early remarks around hiring in Europe in 2015. Can you talk a little bit about I guess the opportunity you said you see there and more importantly how far away you think we are from a more meaningful uptick and activity there, given I guess your attempts to kind of stick up on talent there for now?

We're doing, again remember the industry development of Moelis & Company, we probably started Europe really effectively two years after we started Moelis & Company in the U.S. So we're kind of on that ramp up and the increase we've seen the last year is very exciting. We think our talent base is great, we've gotten critical mass. And now the Europe question is look it's a little above my pay grade. In the last 48 hours I guess Greece both agreed to negotiate and got cutoff in the same day. So the volatility around the political part of Europe, I can't give you a good projection. Again our dialogue has improved dramatically, our talent base is good, we have invested in the financials that you're looking at, this year, last year; going back includes a pretty good investment in the European franchise that will be very effective when all that comes to pass. And we did very well last year, may be despite what is not an optimal European economy and political situation. So I feel very good about our position and again I'm not going to say where I think Europe comes out in the next 24 months because a lot of it is political and hard for me to predict.

Got it. Now I understand that. All right cool, thank you.

Thank you. And the next question comes from Betsy Graseck with Morgan Stanley.

Couple of quick questions. So one, you mentioned the restructuring revenue previously about how a little bit slower year-on-year but just talk through what the key drivers were that drove a little bit of a slower restructuring environment in 2014 and speaks to what you're seeing now in 2015?

Look, restructuring in a market where credit, remember backup may be 12-months, clearly before the energy crisis hit the energy oil reductions hit the high yield bond market. The availability of money was almost infinite it was almost any company could get money at a fairly low rate. So everybody who could refinance probably did so in 2013 and in the early part of 2014. LIBOR floating rate interest is not very pressure full on making your coupon. It doesn't put a lot of pressure on you because it's so low. So usually what leads to a restructuring environment in that is a lack of availability of capital and that just didn't, the capital was available right through the third and fourth quarter of last year. So instead of that I say instead of defaulting people just refinanced. And if you have that choice we usually advise you refinance. But -- so that's really the environment and by the back half of 2014 is when you saw all that everybody who wanted to refinance I think did. I think going into 2015 we're starting to see much it more difficult to tap that market. It's tightening up, the high yield market, rates are going up, in certain areas can access the market, so we might see more volatility around that. But that's the reason why the back half of 2014 had such a low default rate or a low restructuring rate.

Right. So yes, due to the environment change it seems like its set for probably better year in 2015 or essentially fall [ph]?

Look, I think the thing that really drives it, remember the big year in 2009, it wasn’t even the size of the coupon, its availability of capital. That’s what really triggers a restructuring wave because, just unavailability. We're not in that spot yet. In certain places we might be like the dramatic change in the underwriting of a balance sheet from a $100 royal to $50 royal could trigger some of that. But that is, Betsy, if you wanted to keep your eye on it I'd say if you see the high yield market continue to trade wide of the high grade market and just general availability of capital for less than investment grade credits is a big indicator of when the cycle starts.

Right, got it. Okay that's great and then just separately on deflation environment, you mentioned companies are getting used to this place deflation or disinflation environment, has that impacted how they're thinking about what they are paying for deals?

No, interestingly in a world -- it's an interesting world. And look I know we had interesting genius on all this stuff myself including but nobody is ever actually did in it long try -- I was just had dinner with our Japanese partner so I was trying to ask them about it because they have. But there are still bit, people can pay a big price for the strategic asset and I think this is an interesting part. For the strategic asset that does result in the cost synergy. So you can't buy everything at a big price, but the asset that actually does combine with you to create pricing power, market share, SG&A overhead, consolidation of factory, you can’t pay for because your interest costs are extremely low and the reward in the market is extremely high as that passes down through your balance sheet. And so I actually think you see people who want a strategic asset willing to pay a lot for it because in a growth world you can get your growth in several places, in a cost reduction world its usually singular where you're limited as to where your cost reduction can be had and therefore you can't miss the opportunity and we've seen people pay up for that opportunity if that makes sense. And the financing costs are extremely low to get there. Look I think yesterday I was stunned, I've never seen this before but I think Nestle corporate bonds went negative. So I would like to be in a position where Moelis can issue bonds at a par and pay back at 99 in a few months. But I don’t know that going to be prevalent but I don’t think I’ve ever seen a corporate interest rate go negative and that’s just the -- the most egregious example of low interest rate.

Now I heard that all right. And then lastly, you've talked about that already. But just wondering QE benefits are you seeing any chatter or expecting that there is some growth benefit to that or not?

I don't. I'm not a big fan the QE is doing huge amounts of positives, but it may have people's confidence in some ways that I'm missing but I can't really draw a line from any decision I've see to QE.

Yes, okay. Thanks.

Thank you. And the next question comes from Ken Worthington of JPMorgan.

Hi, this is Bill Cuddy from JPMorgan covering for Ken. And Ken apologize was not joining. So first question, Ken, I know you talked a lot about the cycle in the M&A markets currently. We've been hearing that more M&A is being accompanied by financing. Is that a reasonable observation and still how are you positioned?

Well, hey, I don't think that's actually true what in my scenario I think people are not leveraging their balance sheets actually they are going the other way. I think in a deflationary/disinflationary world I think quality balance sheets are going to get rewarded. I think we're seeing more stock-for-stock. You're not seeing strategies get outbid by levered deals. So that the ability to walk-in with a private equity firm and win every deal of some big fees just not happening for that reason. And in deals where there is financing which we are in large one that's been announced that I want to talk about the client deals, but we help the clients pick that financing, we help them understand the financing, and we help advice on the right level of financing and often our clients are very happy to have us in the room because they feel, they don't only feel it's true that we are not motivated by any of the fees related to the financing. So they -- we are asked often for our advice on the financing who to do or with what the terms are and can we help understand it, we keep a full contingent of capital markets advisory people in place to help with that and we think it's a real opportunity for us.

Great. And then I know you've touched on MDs a lot. Just one clarifying question. Is January only month for promotion where you anticipate making any interview or promotions internally?

No, other than hires we do it once a year.

Great. Thank you.

Thank you. And as there no questions at the present time, I'd like to turn the call back over to Ken Moelis for any closing comments.

I appreciate all your time this afternoon. As always we're available for questions and clarifications and I look forward to speaking with all of you soon. Thank you.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Have a nice day.