DEBT DEAL BREATHES NEW LIFE INTO SLATER & GORDON

Written on the 2 May 2016 by Nick Nichols

DEBT DEAL BREATHES NEW LIFE INTO SLATER & GORDON SHARES in Slater & Gordon (SGH) have finally been jolted back to life, surging more than 130 per cent in morning trading after the legal group revealed it had secured renewed support from its bankers.

The shares, which have been languishing below 30c for the past two months after the company reported an interim net loss of nearly $1 billion, hit a high of 68c in early trading.

They settled around 57c in late morning trading with more than 23 million shares changing hands as investors were buoyed by news that Slater & Gordon had reached agreement with its banks, and avoiding the threat of them calling in their loans by as early as March next year.

After reaching agreement to amend their existing syndicated debt facility, the banks have given the Melbourne-based company breathing room to deliver on its business plan, rattled last year by problems plaguing its recently acquired UK operations.

Slater & Gordon had net debt of $741 million at the end of December 2015.

Its latest half-year result was hit hard by an $876 million impairment on goodwill in the UK. Further writedowns in its Australian business pushed the legal group to a net loss of $958.3 million in the first half of FY16, putting further pressure on the company's share price.

Under the new agreement with lenders, Slater & Gordon has been able to keep its existing facility intact at $840 million, with $480 million now set to mature in 2018 and the balance in 2019.

Slater & Gordon says the support from its lenders is a 'positive and clear endorsement of the company's performance improvement program'.

It says the amended debt facility offers a 'clear runway to execute and realise the full benefits from the performance improvement program ahead of its nearest maturity and refinancing in May 2018'.

A relieved Andrew Grech, the Slater & Gordon managing director, says he is both 'very pleased and grateful for the strong level of support' offered by the company's lending group.

"We remain focused, as a management team, on executing our performance improvement program across the business to improve profitability and cashflow, and reduce debt," he says.

"We are confident that the amendments we have entered into today with our lending group provide us with the flexibility and time to execute and continue our performance improvement program."  

Among the amendments agreed to by the banks is a resetting of financial covenants which have been seriously affected this past year by the decimation of Slater & Gordon's share price. They also call for greater frequency of reporting by the company to its lenders.

The bad news for shareholders is that there is unlikely to be any dividend paid to them in the near term as any surplus cash will be applied to debt reduction.

The bankers also have a chance to share in any upside potential from Slater & Gordon's shares through amendment fees they are owed as part of the new debt deal.

The lenders may acquire Slater & Gordon warrants in lieu of this fee, which provides for a placement of shares in the company on refinancing or maturity of a facility of up to 15 per cent of any 'substantial' uplift in the market capitalisation.

Slater & Gordon says it expects more than half of its lending group to take up the amendment fee in cash.

Author: Nick Nichols

Latest News

NEW CLASS OF EDUCATION NURTURES ENTREPRENEURS OF TOMORROW

THE rise in youth unemployment has affirmed the importance of entrepreneurship education, and south-east Queenslan...

DUET GROUP SUBJECT OF $7.3 BILLION TAKEOVER OFFER

HONG Kong's Cheung Kong Infrastructure has launched a $7.3 billion cash bid for one of Australia's largest en...

G8 SHARES BUOYED BY FORECAST PROFIT RECOVERY

CHILDCARE centre operator G8 Education (ASX:GEM) has revealed it is on track to post a pre-tax profit of up to $16...

BELLAMY'S FINDS EXPORTING BABY FORMULA INTO CHINA IS NO CHILD'S PLAY

BELLAMY'S (ASX: BAL) shares have suffered a 40 per cent drop in value today after the company hit a regulatory...

Related News

JB HI-FI IS THE GOOD GUY IN $870 MILLION ACQUISITION

ELECTRONICS giant JB Hi-Fi has formally completed its $870 million acquisition of home appliance chain The Good Gu...

ACCC ACTS AGAINST MERITON'S RIGGED REVIEWS

MERITON Property Services is under fire from Australia's main consumer watchdog, after it allegedly engaged in mi...

ACCC FIRES WARNING SHOT TO IVF PROVIDERS

IVF clinics have been put on notice by consumer watchdog, the Australian Competition and Consumer Commission (ACCC...

BIG W CEO QUITS AFTER 11 MONTHS

SALLY MacDonald has resigned as chief executive of BIG W ending her tenure at the helm of the struggling discount ...

Contact us

Email News Update Sign Up Contact Details

Subscribe to our mailing list

* indicates required
Email Format

PO Box 2087
Brisbane QLD 4001

LoginTell a FriendSign Up to Newsletter