Ann: Market Update, page-75

Debt experts said that debt covenants linked to market capitalisation have largely been removed following the dramatic fall in Babcock & Brown shares, which triggered loan covenants that effectively gave lenders control of the company.

"As is customary, we have not released the details of our covenants to the market, but we are very comfortable with the 'covenant headroom' that exists, as are our financiers," the Slater & Gordon spokeswoman said.

In the United States, companies are required to disclose their debt covenants to shareholders in 10-K filings, but no such requirement exists in Australia.
Shares in Slater & Gordon – which have fallen more than 40 per cent in five trading sessions – rallied on Wednesday, trading 4.78 per cent up at $3.73, providing some relief to bewildered fund managers who have kept faith in the company.  

The loan pushed Slater & Gordon's net debt position to the upper band of its board's stated level of comfort of between 30 per cent and 40 per cent net debt to equity.
Bank of America Merrill Lynch analysts said in a note last week that "given the weak free cash flow generation of the business, combined with lack of recurring revenue, we believe Slater & Gordon's balance sheet appears stretched at 1.8 times net debt to earnings before interest, tax, depreciation and amortisation".
The analyst has an underperform rating on the company after publishing a detailed report questioning the $1.3 million price tag paid for Quindell's professional services division.
Slater & Gordon remains a target of short-sellers that are eagerly awaiting the release of the revised financial statements of Quindell, which is expected to offer further insights into the performance of the collection of businesses acquired by the ASX-listed law firm in March. This week, Quindell said it would miss the deadline to file the accounts because of "complexities" involved.




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