Slater & Gordon’s rescue under way after debt sold to hedge funds

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The Australian-based family lawyers, Slater and Gordon are just about to have new owners after offloading its debt ($680 million loans) which has been sold to international and domestic hedge funds for $146 million.

National Australian Bank and Westpac, which were the main lenders, are now forced to reduce the expected value as the firm’s debt has been sold at a substantial discount of 80%, and is now set for an equity swap.

The law firm says it has been notified that about 94% of its loan has traded from Westpac and NAB (its original syndicate lenders) to secondary debt buyers. Westpac had about $230 million of the firm’s debt, NAB held about $200 million, and the rest of the debt was split between Royal Bank of Scotland and Barclays.

Investment bank Moelis together with law firm Arnold Leibler have been working for a few months on the firm’s corporate restructure before carrying out this anticipated auction-style process.

Some time back, Slater and Gordon shares’ worth increased by more than fifty percent to $0.14. In the year 2015 the shares had a higher value of $8.07; at this time, the company was worth $2.8 billion. However, its underperforming business plans to limit road accident compensation led to a steep slide. As at June last year, Slater and Gordon had a $680.4 million net debt. Its current market capitalisation is about $50 million.

New senior lenders and stakeholders in the company believe that a debt for equity swap recapitalization plan by the lender scheme is in favour and interests of stakeholders, the law firm said to the ASX today. Existing shareholders may still retain ownership in the company, but expectations are that their value will be diluted significantly.

The company also says the new lenders intend to implement a restructure of the company; this will ensure it has a stable operational platform and sustainable level of debt levels for its future in both the UK and Australia.

The new holders of Slater and Gordon firm debt are yet to be named. However, according to the Australian Financial Review, the largest owner of the company’s debt is Anchorage, a hedge fund based in New York.

The company was the first law firm to be listed on the stock exchange, but in August last year, it posted an expected $1.017 billion annual loss. This included non-cash impairment worth $879.5 million in its UK business. Moreover, according to last month’s reports from the law firm, it had a $425.09 m loss from July to December last year, which included an impairment charge of $350.3 against its UK business value.

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