SGH (ASX) Going going gone

Originally posted by headsortails ↑

From the Australian 12:00AM February 23, 2017

"The clock is ticking for troubled law firm Slater & Gordon with some now questioning whether the company is at risk of running out of money before June.

Already, banks have loans outstanding to the group worth more than $600 million and the lenders will likely need to provide additional funds to ensure the business survives, sources said.
The company’s cash flow position in the second half of the 2016 financial year was negative $20.9m and the group’s debt pile matures in May next year, with various covenant hurdles along the way that it needs to ensure it does not breach.

As at fiscal 2016, the group’s net debt sat at $682.3m.
Slater & Gordon struck trouble after buying the Quindell professional services division in a 2015 deal worth $1.23 billion, writing down $814.2m from the business, since rebranded as Slater & Gordon Solutions.

Many have anticipated that the company is unlikely to collapse, but lenders are still mulling over a scheme of arrangement — effectively a recapitalisation plan — mooted by Slater & Gordon last week.
Among the existing lenders are Westpac, the National Australia Bank, RBS and Barclays, and many are betting that both Australian banks will be imminent sellers of their loans due to the fact that Australian banks are typically unprepared to swap debt for equity.
The view is that the listed business was unlikely to collapse and that the most probable outcome was a successful recapitalisation of the company, given that it was not in the bank’s interests to see the business fail.

For a scheme of arrangement, 75 per cent of the lenders need to agree, and with hedge funds recently buying into the debt pile they may now have power to veto any deal proposed by the major financiers.
Moelis is working with the company and among the hedge funds that have recently bought loans from other financiers in Slater & Gordon are Varde Partners and Anchorage Capital Partners out of the US.
Debt has traded for between 30c and 40c in the dollar in Slater & Gordon, that currently faces a class action.

Shares in the company are selling at 17c after the group put out a statement last week about its lender discussions and trading performance."

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For a scheme of arrangement, 75 per cent of the lenders need to agree, and with hedge funds recently buying into the debt pile they may now have power to veto any deal proposed by the major financiers.

This appears to be a wrong assumption unless major lenders WBC and NAB have sold out.