29 February, page-49

The forces at work:

- UK write down because well overpaid the business vs. performance and potential?
- Further UK write down because reforms coming bullseye the Quindell business model? Banks will assume conservatively.
- Aust accounts write down, hitting P&L ala SHJ, because E&Y taking much tougher line than Pitcher Partners?

Do all of that and you have big loss - guidance is ancient history from prior era of hopefulness and spin.
Shareholder intelligence should not be insulted by referring to such write downs as "non-cash".

Banks facing:
- impossible cliff in maturity schedule - the good ship SGH is right now sailing on course to full default in absence rollover/new capital
- breached debt/equity covenants due to write downs?
- intolerable for banks value of debt to SGH's market value equity
So something has to give.

All then boils down to lenders' trust in SGH's future cash generation and management post write downs:
Both these points have been greatly tested last 6 months, but forensic work (e.g. McGN and E&Y) now underway to form concluded way.

- High lender trust: Opex cuts only get there
- Moderate trust: Opex cuts and some form CR / debt equity swap
- Low trust: heading to game over with perhaps bit of kicking for 6 months on way to bottom
- Very low trust: game over / run the WIP down for recovery

(Of course there's also Super High Trust outcome: everything mostly fine! no/little write downs)

I don't think anybody can predict now with certainty where on spectrum things will come in.

My own view, the most bullish announcement would be savage write downs UK and Aus - plus banks saying Opex cuts enough to generate cash and agreed a debt rollover with no CR. And for real upside, Skippen/Grech going. But I don't think this is likely at all