Countdown to administration, page-143

It might well come down to sheer arrogance, aloofness, or frozen inertia (literally rooted to the floor below).

The SFA is already maxed out at ceiling limit. There are no more funds to be had. Interest is at LIBOR + margin (in AU, at AUBB + margin). In effect this puts the broad interest rate at around 4.5% - 5% (even with LIBOR /AUBB added in). In effect, SGH has borrowed (per medium of bills of exchange) at blue chip rates in circumstances where it has delivered a very murky outcome.

If (and its a very big "if"), the banks were to extend, it would be at very much higher rates than those presently existing. The current risk premium alone would be circa 600 - 800 BP above LIBOR /AUBB rates, at a minimum. If so, then that would put the loan facility at /above 9-10% in nominal terms.

Regardless, the one thing that would be certain would be any suggestion of the existing interest rates being maintained. So, even if one were to consider that SGH was CF+ on a normalised basis (but what is normal when in fact, to survive, they will have to take, for the first time, a really serious cut to OPEX?), this probably would not be enough.

To fully cover for this, CF+ (normalised) at the H17 mark would need to have been +$30 - 35M above where it actually was, just in order to meet the re-rated interest expense position going forward, and that's without paying anything back.

Remember, when anyone talks of debt being sold on a discounted basis, that doesn't mean a thing for SGH. All that it means is that the new debt owner is entitled to the full coupon rate of the debt at maturity, even though they may have only paid 30-70c/$ for the right to do so. From SGH's perspective, it must still pay the full debt amount (no discounts). The only way that SGH is let off the hook in this regard is if the lenders extend debt forgiveness to SGH (ie: directly write it off and so therefore directly reduce the total amount payable to them by SGH).

But even that, that will not be enough. SGH has no working capital facilities left which it can tap into. All it has is the cash on hand amount which itself must stay above a minimum stated amount in order to avoid triggering default of the SFA facilities. In the H17 report, SGH has already admitted that it can't repay the debt and that it also cannot pay interest (based on the current amounts, not on the likely re-rated amounts, if it were to survive). That was at note 1.2:
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"The Group will not have sufficient free cash flow to pay interest and repay the facilities in May 2018, or earlier, and there is some risk that it may not meet minimum cash balances specified in the SFA. Accordingly, the Group requires the ongoing support of its lenders to continue as a going concern."

Trouble is, in order to survive and function ahead as normally as is possible, SGH will almost certainly need new funding of a working capital nature and a sizeable amount at that. Now, who, form among the banking sector are going to chip in for that? And if they did, at anything even remotely <10%? The answer is probably none and none.

Beyond this, even if the banks were to be sorted and working capital stresses were to be addressed, SGH still has the problem of having to deal with its trade creditors, very few of whom would even remotely be prepared to wait on until the passing of the never ever in order to be paid.

The comments made overnight by the List A barristers are therefore significant if, for no other reason than this ==> barristers lurk around in packs, but once one of them is spooked its like a gaggle of geese. They all get spooked. As it is, List A has 128 barristers on board (~8% of the total Victorian Bar), with 50 Silks (including Myers, Archibald, Lucarelli, Nolan, Hayne, and Finkelstein amongst others), and 78 juniors. It is therefore quite a powerful List which carries with it influence and respect, not just the air of judicial might.

Add to this a share price now @7c. Even if one were to even remotely contemplate doing a capital raising or DFE or similar, then it would now need to be done at a likely discount to the current price. That is, at a discount to any price to which the stock has otherwise plumbed the depths of in recent times. To therefore may this happen, you would be talking about requiring 2 Billion shares (for example @5c) just in order to raise $100M. So, in order to, for example, raise $760M +, say a further $100M in working capital, upwards of 17.2 Billion shares would need to be issued. So, it's not going to happen.

SGH should however have moved to a capital raising last year, when its share price was upwards of 10x what it closed at tonight. Even 3 weeks ago, a possible CR might have gotten off the ground at 20c (4.3 Billion shares), or at 25c (3.44 Billion shares). Not so, anymore.

With Nero fiddling it seems that La Trobe Street is burning with the question remaining as to whether the fire brigade will arrive in time in order to douse out the flames. Judging however by the near on 80% wipe-out of the share price in the last 2 weeks alone, the answer to this is one of hope, rather than of it being hopeful in any meaningful way.

The banks may well have decided on keeping support going provided that they do not have to (*) tip in any more funds, (*) all external creditor risks to the business have been neutralised, (*) proper interets is charged, and (*) that interest is paid for along the way (and not capitalised in any way). But if they now face the prospect of having to kick in more funds, not get paid their interest, have to keep a sub-risk par interest reference rate in place, and still have to face off against the risk of external creditor attacks, not only will they not like it, but very likely they will not even tolerate it. No banker will ever risk more funds having to be put down in order to get back the existing funds owed, and especially not in circumstances where the highest possible interest rate is not being charged.

As for Receivership, this would arguably be the banks call. The directors would call for administrators to be appointed, with the banking syndicate then likely responding with the appointment of Receivers. But as for why this has not yet occurred, it could well be that a lot of things are happening behind the scenes (ie: in terms of putting teams together etc) for it won't just be financial Receivers /Administrators going in but also Legal Receivers (ie: of the various practices).

Sometimes, the planning to this being done takes time although this is a luxury that they no longer have.

In a few days time, however, there will be a whole raft of new payment pressures emerging (assuming that all those that fell due yesterday and overnight were indeed paid), with the biggest one of all being payroll which depending on its frequency will be looming up in <2 weeks time.

They should therefore have gone into a TH /VS when they had the opportunity of doing so but instead of this, it seems very much like that Skippen & Co are managing the decks of the Titanic whilst everyone else is either treading water, or are still trapped below the main decks (and still they didn't see that iceberg approaching just like Flash and the Pan's 1979's hit: "Down Among the Dead Men"). Unfortunately, no band playing on here.