A tough year in the high-yield bond market pushed down Cahill Gordon & Reindel’s revenue and profits in an otherwise upbeat legal market.
Gross revenue, profits per equity partner and revenue per lawyer at the New York firm each declined about 7 percent last year. Revenue sank to $360.5 million, profits per equity partner lowered to $3.43 million, and revenue per lawyer dropped to $1.24 million. Total lawyer head count, at about 291 lawyers, and equity partner ranks, at 62 partners, stayed level.
“We obviously are not satisfied,” said Cahill Gordon chairman William Hartnett about the firm’s financial performance.
The financial slide was due to lower demand in leveraged finance, in particular, high-yield bond work, which the firm is “highly dependent on,” said Hartnett, noting high-yield bond issuances in the U.S. were down about 40 percent last year and there were zero high-yield bond issuances in December.
“The market in high yield had shrunk, and that basically is the entire explanation of our decline,” Hartnett said.
Cahill Gordon represents underwriters in high-yield bond offerings, also known as junk bonds, including in analyzing risks and structuring issuances and covenant packages.
According to 2019 first quarter league tables by Bloomberg, Cahill Gordon has overwhelming market share in representing underwriters in U.S. high-yield corporate bonds, with more deal volume than its next three competitors combined, including Davis Polk & Wardwell; Cravath, Swaine & Moore; and Simpson Thacher & Bartlett,
Cahill Gordon was particularly hit by the down market in high-yield bonds compared with other New York firms because of its smaller size and its focus on the area. But Hartnett said the firm has greater confidence about 2019, as the leverage finance market is stronger than last year and the firm is considering steps to diversify.
“We believe last year was somewhat of an anomaly in the leveraged finance market. We have seen it bounce back already in this first quarter, but you don’t just write something off as an anomaly,” Hartnett said. “You make sure you’re well positioned on a going-forward basis.”
“We are looking at various options to expand the footprint,” Hartnett said, declining to specify further because he said it was too early to explain. ”We’re pursuing a couple of options at this point.”
Despite the down year, Hartnett said the firm did not take any cost-cutting measures, such as layoffs or hiring fewer associates. Cahill Gordon had a large summer associate class in 2018, reflecting the firm’s confidence in the future, he said.
Other practice areas continued to perform well in 2018, Hartnett said, including litigation, corporate investigation, regulatory advisory work, real estate and tax.
Last year, Cahill Gordon’s white-collar team represented Tesla in the SEC enforcement action stemming from CEO Elon Musk’s Twitter statements. Cahill Gordon continues to represent Credit Suisse Group AG and its subsidiaries, including in civil litigations and investigations related to alleged manipulation of LIBOR and other reference rates during the financial crisis.
On the corporate side last year, Cahill Gordon advised on $27 billion offerings of new debt financing which funded Comcast’s acquisition of U.K.-based Sky, one of the largest high-yield bond sales to date. Cahill was also involved in the $13 billion of financings to back The Blackstone Group’s acquisition of a 55 percent stake in Refinitiv, a financial and risk business from Thomson Reuters Corp.
While Cahill Gordon’s equity ranks, at 62 partners, didn’t change in 2018, the firm had five nonequity partners last year, down from seven in 2017.
Hartnett said it was not a deliberate decision to keep the firm’s equity partner figures flat. Associates who deserve to be a partner will be promoted, he said, adding “retirements have matched new partners coming in, it’s as simple as that.”