by: Jamie Smyth in Sydney
The main lenders to Slater & Gordon, the struggling Australian law firm with operations in the UK, have sold 94 per cent of their loans at heavy losses to a consortium of distressed debt investors that plans to restructure the business.
The banks, which include Westpac, National Australia Bank, Royal Bank of Scotland and Barclays, accepted losses of between 70 and 80 per cent on their loans, according to a person familiar with the deal.
S&G and the new senior lenders said a planned debt-for-equity scheme of arrangement would be in the best interests of stakeholders.
The arrangements confirm that shareholders in S&G, the world’s first publicly listed law firm, are likely to be bear the financial brunt of a restructuring prompted by the group’s disastrous expansion into the UK.
The law firm’s shares, which traded above A$7 in early 2015, on Friday rose 40 per cent to 12.5 Australian cents.
Westpac and NAB declined to comment. RBS and Barclays could not be immediately reached for comment.
S&G said its lenders intended to “implement a solvent restructure of the company and . . . to reset its debt structure to ensure the company has a sustainable level of debt and a stable platform for its future operations both in Australia and the UK”.
S&G’s main lenders balked at investing the fresh capital required to turn round the law firm, which has most of its underlying value tied up in its staff. But the specialised distressed debt investors will invest to stabilise the business, according to S&G, which hired Moelis & Company to advise on the debt restructure.
S&G’s financial difficulties date to March 2015 when it said it would buy most of troubled UK insurance claims provider Quindell for £673m, and announced a A$890m equity raising to help fund the deal with the A$235m balance funded by debt.
Shortly after the purchase, which Andrew Grech, S&G’s managing director, had billed as “transformational” for the firm, Quindell came under investigation by the UK’s Serious Fraud Office for its historic business and accounting practices.
S&G’s UK business has underperformed its pre-acquisition forecasts, with fee and services revenue falling 17.8 per cent year-on-year in local currency terms in the six months to the end of December. S&G blamed this on the disruption caused by “transformation activity, staff turnover and the impact of negative sentiment on the business”.
The UK has also passed new laws aimed at reducing personal injury claims — a major part of S&G’s business.
“The acquisition significantly increased net debt but the promised earnings simply never materialised, putting S&G in a precarious financial position and raising questions about management’s judgment and ability to allocate capital,” said Morningstar, an investment manager that this week ceased its coverage of S&G.
Last month S&G reported a A$425.1m (US$326.4m) net loss for the six months to the end of December, narrowing from a loss of A$958.3m in the same period a year earlier.
S&G faces a class action law suit from shareholders, and Australian regulators are separately probing the accuracy of accounting at the Melbourne-based firm, which has expanded aggressively since floating on the ASX in 2007.
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