Investment Banking Restructuring Advisory (Short 2018, Long 2019?)

Greenhill & Co. Inc. and PJT Partners Inc. Both Report Numbers

Greenhill & Co. Inc. ($GHL) reported numbers this week that fulfilled the expectations of at least one cohort: short-sellers. The company reported EPS that missed by $0.58 and revenue down 34% YOY. On the company conference call, executives were asked about key hires and one bit about restructuring caught our eye:

• "Look, I think there are – certainly are some talented people out there and there are always people who are interested in moving for a variety of different reasons. So I think, we expanded the group a little bit last year with particularly one senior recruit from the outside, and I think we’ll find ways to do it further this year. And I certainly agree with you, it’s not, because we think there is a kind of an imminent boom in restructuring, but we do think there is one coming. Obviously, there has been a lot of dislocation in equity markets in recent days and interest rates starting to move up. And so at some point clearly, credit markets are going to turn and there will be a lot of restructuring to be done. But I would view the big opportunity there is probably in 2019 and beyond, whereas right now, the bigger opportunity is pretty fully on the M&A side."

Hmmm. Expect someone big to announce their arrival there in due time.

Elsewhere in banking, PJT Partners Inc. ($PJT) reported numbers that beat by $0.13 and revenue up 9.9% YOY. Notably, its commentary about engagements seems to reflect the larger macro transition out of '16 hot spot, energy, towards a more diverse array of distressed sectors. To point, Paul Taubman stated,

• "In restructuring, we maintained our position as a leading restructuring franchise. In 2017, we were able to largely offset the slower pace of energy related activity with strength in several industries including retail, healthcare, power and TMT. In addition, we saw significant strength in restructuring outside the U.S. Our global restructuring backlog is comparable to year-ago levels."  (PETITION NOTE: already in 2018, PJT is advising Exco Resources Inc., Philadelphia Energy Solutions LLC and The Bon-Ton Stores Inc.).

Later in the call he added,

• "If you look at 2015 to 2017, I think we’ve seen a meaningful increase in our restructuring revenues. But it spiked and hit a -- an intermediate high in 2016 and that sugar high was largely driven by all the activity which was commodity-based as we -- we’re working round-the-clock to restructure many energy and energy-related companies. I think you saw some of that spill over into 2017, we had more difficult comparisons. And I think as we enter 2018 virtually all of the remnants of that sugar high are kind of behind us and we're now looking at an overall subdued marketplace for restructuring. So if you think about this in a long-term context and just look at where default rates are, just look at the strength of credit, look at where interest rates are today, this is amongst the most benign overall credit environments that one would see. So as we think out longer-term, I think it's inevitable that, that worm will turn and restructuring activity will pick up."

If restructuring activity does eventually pick up, advisory banks may want to have a better sales pitch than RBS: "our restructuring business did not turn around the 'vast majority' of small businesses it worked with."