Is MoFo a debt-free firm?

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Is MoFo a debt-free firm?

Postby Anonymous User » Sun Sep 11, 2016 3:55 pm

Anyone know if they have any debt on their balance sheet? I can't seem to find this info anywhere.

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Re: Is MoFo a debt-free firm?

Postby Anonymous User » Sun Sep 11, 2016 4:09 pm

I had the same question about Latham & Watkins. It doesn't seem like this information is made public anywhere (even ALM doesn't have it).

A few firms make a point of saying they *don't* have debt--is assuming everyone else does have debt TCR?

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Re: Is MoFo a debt-free firm?

Postby TLSModBot » Sun Sep 11, 2016 4:52 pm

I've looked long and hard, and I don't think it's published anywhere (and would be tough given how much their debt can vary over the course of a year depending on their revenue collection, expenses, and partner draw schedule).

There are two big practices that I think serve as (extremely rough) proxies for potentially concerning debt acquisition. One, partnership rainmaker acquisitions with guaranteed payment contracts (think Dewey). The second is aggressive expansion into new and bigger offices. In neither cases do firms want to take a large hit in their PPP, so they turn to debt financing to take the initial blow and then spread out costs through one or more years.

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Re: Is MoFo a debt-free firm?

Postby TLSModBot » Sun Sep 11, 2016 4:53 pm

But really debt is only a problem if the firm is experiencing problems in revenue growth or partner retention, either of which are more readily observable

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Re: Is MoFo a debt-free firm?

Postby Anonymous User » Sun Sep 11, 2016 5:11 pm

Anonymous User wrote:I had the same question about Latham & Watkins. It doesn't seem like this information is made public anywhere (even ALM doesn't have it).

A few firms make a point of saying they *don't* have debt--is assuming everyone else does have debt TCR?

I don't remember the exact number off the top of my head but I did see a LW management presentation recently and the firm generated a minimal amount of debt every year in the course of its annual operation, which got cleared away in the following fiscal period.

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Re: Is MoFo a debt-free firm?

Postby Anonymous User » Sun Sep 11, 2016 5:26 pm

Anonymous User wrote:
Anonymous User wrote:I had the same question about Latham & Watkins. It doesn't seem like this information is made public anywhere (even ALM doesn't have it).

A few firms make a point of saying they *don't* have debt--is assuming everyone else does have debt TCR?

I don't remember the exact number off the top of my head but I did see a LW management presentation recently and the firm generated a minimal amount of debt every year in the course of its annual operation, which got cleared away in the following fiscal period.

Can confirm.

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Re: Is MoFo a debt-free firm?

Postby star fox » Mon Sep 12, 2016 4:59 pm

I do not see the advantages to a firm being "debt-free"

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Re: Is MoFo a debt-free firm?

Postby Johann » Mon Sep 12, 2016 6:11 pm

lol why do you care? lol at a bunch of lawyers balance sheet checking billion dollar law firms to determine if they are financially sound.

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Re: Is MoFo a debt-free firm?

Postby Anonymous User » Mon Sep 12, 2016 6:56 pm

JohannDeMann wrote:lol why do you care? lol at a bunch of lawyers balance sheet checking billion dollar law firms to determine if they are financially sound.


There are a couple reasons it matters. First, the more debt a firm has, the lower the interest coverage ratio. So if the economy tanks and clients can't afford to pay firms what they used to, a firm may be more likely to cut costs (employees) earlier to avoid defaulting on interest payments. The less liabilities a firm has, the longer it can weather a storm without resorting to laying people off. It can also be more strategic in the way it lays people off (i.e. senior associates without partner potential/support staff etc.). Less debt simply affords more flexibilty.

Second, some firms try to lure "rainmaking" partners from other firms by offering bloated salaries. Sometimes firms don't have enough equity to spare on such large salaries so they resort to paying partners using debt. Don't get me wrong, some debt is good (tax shield), but having either too much debt, or using debt irresponsibly (some would argue using debt for salaries is not good financial management) can be a red flag.

With a change in presidency coming up and the omnipresent student loan debt bubble looming, it is absolutely reasonable for students looking at employment two years out to want to take more than just PPP into consideration.

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Re: Is MoFo a debt-free firm?

Postby LaLiLuLeLo » Mon Sep 12, 2016 7:19 pm

Anonymous User wrote:
JohannDeMann wrote:lol why do you care? lol at a bunch of lawyers balance sheet checking billion dollar law firms to determine if they are financially sound.


There are a couple reasons it matters. First, the more debt a firm has, the lower the interest coverage ratio. So if the economy tanks and clients can't afford to pay firms what they used to, a firm may be more likely to cut costs (employees) earlier to avoid defaulting on interest payments. The less liabilities a firm has, the longer it can weather a storm without resorting to laying people off. It can also be more strategic in the way it lays people off (i.e. senior associates without partner potential/support staff etc.). Less debt simply affords more flexibilty.

Second, some firms try to lure "rainmaking" partners from other firms by offering bloated salaries. Sometimes firms don't have enough equity to spare on such large salaries so they resort to paying partners using debt. Don't get me wrong, some debt is good (tax shield), but having either too much debt, or using debt irresponsibly (some would argue using debt for salaries is not good financial management) can be a red flag.

With a change in presidency coming up and the omnipresent student loan debt bubble looming, it is absolutely reasonable for students looking at employment two years out to want to take more than just PPP into consideration.


Doesn't change the fact that asking if a specific firm is debt free is totally asinine.

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Re: Is MoFo a debt-free firm?

Postby dixiecupdrinking » Mon Sep 12, 2016 7:28 pm

It reminds me of people who brag about not having a credit card. Like, ok, some people will go out and buy a boat they can't pay for on their Discover card, but if you're refusing to take on even a responsible level of debt, you're probably passing up smart opportunities.

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Re: Is MoFo a debt-free firm?

Postby Anonymous User » Mon Sep 12, 2016 7:50 pm

LaLiLuLeLo wrote:
Anonymous User wrote:
JohannDeMann wrote:lol why do you care? lol at a bunch of lawyers balance sheet checking billion dollar law firms to determine if they are financially sound.


There are a couple reasons it matters. First, the more debt a firm has, the lower the interest coverage ratio. So if the economy tanks and clients can't afford to pay firms what they used to, a firm may be more likely to cut costs (employees) earlier to avoid defaulting on interest payments. The less liabilities a firm has, the longer it can weather a storm without resorting to laying people off. It can also be more strategic in the way it lays people off (i.e. senior associates without partner potential/support staff etc.). Less debt simply affords more flexibilty.

Second, some firms try to lure "rainmaking" partners from other firms by offering bloated salaries. Sometimes firms don't have enough equity to spare on such large salaries so they resort to paying partners using debt. Don't get me wrong, some debt is good (tax shield), but having either too much debt, or using debt irresponsibly (some would argue using debt for salaries is not good financial management) can be a red flag.

With a change in presidency coming up and the omnipresent student loan debt bubble looming, it is absolutely reasonable for students looking at employment two years out to want to take more than just PPP into consideration.


Doesn't change the fact that asking if a specific firm is debt free is totally asinine.


It's not though. There is a reason a number of firms make a point to show that they are debt free. It shows financial strength and long-term focus.

If a firm is expanding in a certain location or opening a new office while remaining debt free, it can show responsible financial management and strong financial standing. If a firm uses debt to finance a new office/etc., it can either show (1) they are taking advantage of the benefits of using debt (as I mentioned before - tax shield) - however the benefit depends on how much debt they already have (hence the question asked earlier about whether the firm is debt free), or (2) that they don't have enough equity to finance the expansion (which begs the question whether the expansion is a good investment).

Jones Day's conservative financial management allowed them to weather the recession without laying off associates. A good argument can be made that part of that is attributable to their debt-free policy.

Someone asking if a firm is debt free or not is not a dumb question. And it's stupid to assume that a question about whether a firm is debt free implies that the person asking the question won't consider the firm if not - or at least that the answer would weigh heavily in the decision to work at that firm. As I mentioned before, the responsible use of debt is a good thing. I know no one said explicitly that anyone wouldn't consider a firm based on this alone, but saying the question is asinine implies as much. Why else would it be asinine? (partially rhetorical)

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Re: Is MoFo a debt-free firm?

Postby bearsfan23 » Mon Sep 12, 2016 7:55 pm

Anonymous User wrote:
LaLiLuLeLo wrote:
Anonymous User wrote:
JohannDeMann wrote:lol why do you care? lol at a bunch of lawyers balance sheet checking billion dollar law firms to determine if they are financially sound.


There are a couple reasons it matters. First, the more debt a firm has, the lower the interest coverage ratio. So if the economy tanks and clients can't afford to pay firms what they used to, a firm may be more likely to cut costs (employees) earlier to avoid defaulting on interest payments. The less liabilities a firm has, the longer it can weather a storm without resorting to laying people off. It can also be more strategic in the way it lays people off (i.e. senior associates without partner potential/support staff etc.). Less debt simply affords more flexibilty.

Second, some firms try to lure "rainmaking" partners from other firms by offering bloated salaries. Sometimes firms don't have enough equity to spare on such large salaries so they resort to paying partners using debt. Don't get me wrong, some debt is good (tax shield), but having either too much debt, or using debt irresponsibly (some would argue using debt for salaries is not good financial management) can be a red flag.

With a change in presidency coming up and the omnipresent student loan debt bubble looming, it is absolutely reasonable for students looking at employment two years out to want to take more than just PPP into consideration.


Doesn't change the fact that asking if a specific firm is debt free is totally asinine.


It's not though. There is a reason a number of firms make a point to show that they are debt free. It shows financial strength and long-term focus.

If a firm is expanding in a certain location or opening a new office while remaining debt free, it can show responsible financial management and strong financial standing. If a firm uses debt to finance a new office/etc., it can either show (1) they are taking advantage of the benefits of using debt (as I mentioned before - tax shield) - however the benefit depends on how much debt they already have (hence the question asked earlier about whether the firm is debt free), or (2) that they don't have enough equity to finance the expansion (which begs the question whether the expansion is a good investment).

Jones Day's conservative financial management allowed them to weather the recession without laying off associates. A good argument can be made that part of that is attributable to their debt-free policy.

Someone asking if a firm is debt free or not is not a dumb question. And it's stupid to assume that a question about whether a firm is debt free implies that the person asking the question won't consider the firm if not - or at least that the answer would weigh heavily in the decision to work at that firm. As I mentioned before, the responsible use of debt is a good thing. I know no one said explicitly that anyone wouldn't consider a firm based on this alone, but saying the question is asinine implies as much. Why else would it be asinine? (partially rhetorical)


LOL. Jones Day's "conservative financial management" = we pay associates like shit

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Re: Is MoFo a debt-free firm?

Postby rpupkin » Mon Sep 12, 2016 7:56 pm

Anonymous User wrote:Jones Day's conservative financial management allowed them to weather the recession without laying off pay below market salaries to associates

In all seriousness, I don't think the fact that a firm is "debt free" tells you much about the financial health of the firm. And now that I think about it, a firm that refuses to go into debt might be more likely to lay off associates when trouble comes.

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Re: Is MoFo a debt-free firm?

Postby Anonymous User » Mon Sep 12, 2016 7:57 pm

Hey no argument there. As I said, an argument can be made that part of the reason they didn't lay off associates was their debt-free policy. But I'll tell you what, if 2008 repeats itself, I'd rather be below market and employed than unemployed.

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Re: Is MoFo a debt-free firm?

Postby Anonymous User » Mon Sep 12, 2016 7:58 pm

rpupkin wrote:
Anonymous User wrote:Jones Day's conservative financial management allowed them to weather the recession without laying off pay below market salaries to associates

In all seriousness, I don't think the fact that a firm is "debt free" tells you much about the financial health of the firm. And now that I think about it, a firm that refuses to go into debt might be more likely to lay off associates when trouble comes.


Maybe it doesn't. But that doesn't make it an asinine question. I tend to think that a firm with a reasonable amount of debt is better off than no debt. Nonetheless, I don't think it's stupid to ask. Particularly when some firms are more transparent (cough: proud :cough) of it than others (making it easier to find the info than asking on TLS)

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Re: Is MoFo a debt-free firm?

Postby star fox » Mon Sep 12, 2016 8:51 pm

I don't see what's so awesome about being at a financially conservative firm. If that's your personality it may suit you well as a partner but financially conservative means not paying for stuff you can't afford regardless of long term benefits, so if the firm doesn't meet earnings expectations one year it would theoretically slash a cost (associates) to compensate. Not so great if you're an associate.

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Re: Is MoFo a debt-free firm?

Postby Anonymous User » Mon Sep 12, 2016 9:19 pm

star fox wrote:I don't see what's so awesome about being at a financially conservative firm. If that's your personality it may suit you well as a partner but financially conservative means not paying for stuff you can't afford regardless of long term benefits, so if the firm doesn't meet earnings expectations one year it would theoretically slash a cost (associates) to compensate. Not so great if you're an associate.


I agree. That's why debt free and financially conservative aren't the same thing. For example, Sidley Austin is a debt-free firm. But they are expanding in LA, opened a new office last year and pay market rates. I simply used Jones Day as an example of a financially conservative firm who made it through the recession without significant layoffs and that their debt-free policy might be part of that reason. Sidley laid off a good amount during the recession despite their commitment to be debt free. That's why I said earlier that debt free doesn't always equal better financial management. But it does have certain implications that make the question about whether a firm has debt or not legitimate, and not asinine.

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Re: Is MoFo a debt-free firm?

Postby TLSModBot » Mon Sep 12, 2016 9:21 pm

I don't think very many firms are using guaranteed contracts funded by long-term debt in the vein of Dewey anymore, given how spectacularly Dewey imploded (and it was an outlier on the debt front to begin with).

Being "debt-free" is not a proxy for financial stability, because the vast majority of continuing law firm costs are salaries. When work drastically declines via recession or failure to acquire new business, you have associates who are A. costing the firm a lot of money and B. not making the firm money due to the lack of work. Debt has no real impact on a firm's ability to keep its work pipeline consistent or growing.

Some firms used debt aggressively at precisely the wrong time. There are a couple firms who expanded into new offices right before the recession hit; they had to backtrack that shit in a hurry and in losing some money in the process, probably had to cut back hiring for a while. I can't imagine law students being able to predict with any accuracy what firms' major initiatives are likely to do to hiring or associate retention years down the line.

Also: law firms present a higher risk with debt than typical corporations because they don't really do retained earnings, their assets, equipment, and physical inventory are low, and their revenue is hard to predict due to variations in client needs/acquisition, collection rates, and partner retention. I wouldn't assert that law firms can comfortably use debt in the same large amounts that corporations can because it can seriously risk the entire operation.

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Re: Is MoFo a debt-free firm?

Postby Anonymous User » Mon Sep 12, 2016 9:34 pm

Capitol_Idea wrote:I don't think very many firms are using guaranteed contracts funded by long-term debt in the vein of Dewey anymore, given how spectacularly Dewey imploded (and it was an outlier on the debt front to begin with).

Being "debt-free" is not a proxy for financial stability, because the vast majority of continuing law firm costs are salaries. When work drastically declines via recession or failure to acquire new business, you have associates who are A. costing the firm a lot of money and B. not making the firm money due to the lack of work. Debt has no real impact on a firm's ability to keep its work pipeline consistent or growing.

Some firms used debt aggressively at precisely the wrong time. There are a couple firms who expanded into new offices right before the recession hit; they had to backtrack that shit in a hurry and in losing some money in the process, probably had to cut back hiring for a while. I can't imagine law students being able to predict with any accuracy what firms' major initiatives are likely to do to hiring or associate retention years down the line.

Also: law firms present a higher risk with debt than typical corporations because they don't really do retained earnings, their assets, equipment, and physical inventory are low, and their revenue is hard to predict due to variations in client needs/acquisition, collection rates, and partner retention. I wouldn't assert that law firms can comfortably use debt in the same large amounts that corporations can because it can seriously risk the entire operation.


I agree with everything you said. In fact your second paragraph really hits home what I was saying. Acknowledging that a high percentage of a firm's expenses are salaries, a firm that has a potentially risky amount of debt (irrespective of what it is being used for) may have a harder time through a recession when they not only have to worry about salaries, but also interest payments. My point was more the inverse of that, but nonetheless the same. A firm with no debt may be able to manage through a recession with a lower likelihood of layoffs without the extra liability on their balance sheet.



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