SGH Details
Move on capital structure: Slater & Gordon Ltd (ASX: SGH) has released an announcement stating that in excess of 94% of its debt facility has traded from its original syndicate of par lenders to secondary debt buyers (New Senior Lenders, the distressed debt funds). The New Senior Lenders intend to implement a solvent restructure of the company, and thus are working closely with the company to enter into binding agreements to reset the debt structure. This move is thought to ensure that the company has a sustainable level of debt, and a stable platform for its future operations both in Australia and the UK. SGH and New Senior Lenders believe a restructure by a debt for equity Lender Scheme of Arrangement is in the best interests of all stakeholders. Moreover, the company is continuing its confidential discussions with the New Senior Lenders regarding the Restructure and expects that a further update will be provided in the coming weeks. On the other side, Slater & Gordon had reported a $425.1 million net loss after tax for the half year ended December 31, 2016. Key factors impacting the result included the $350.3m impairment charge against the carrying value of UK intangible assets; the underperformance across the UK and Australian operations in relation to resolution of personal injuries claims; and significant reduction in operating costs across all business segments including material labor, advertising and marketing cost savings secured in the UK as a result of the implementation of a performance improvement program. In addition, the company incurred a loss in the first half of 2017 which is also due to the income tax expense of $18.4m related to de-recognition of UK carry forward tax losses from the balance sheet.The group’s net finance costs reached $25.1 million which included $5.5m in facility amendment fees and $13.7m of non-recurring restructuring costs including consultant’s costs, redundancy and property rationalization costs in both Australia and the UK.
 

Normalization Adjustments (Source: Company Reports)
 
Stock performance: SGH stock fell over 77.75% in the last six months (as of March 16, 2017) given the ongoing allegations against the group, impairment charges and mounting debt. Moreover, Slater & Gordon stock is being removed from All Ordinaries Index, effective at the open on March 20, 2017. It is also worth noting that UBS Group ceased to be the substantial holder of group’s securities on March 07, 2017 after becoming a substantial holder on March 02, 2017. Given the latest developments and a move to help avoid administration, the stock recovered over 46.06% on March 17, 2017 after its updates were released to the market in relation to recent confidential discussions with its lenders regarding the stabilization of the capital structure. We maintain a “Hold” at the current price of $ 0.13

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