The Slater & Gordon Limited (ASX: SGH) share price has fallen another 10% today, to trade at just 8.9 cents.
Is the SGH share price going to zero?
As we reported a few weeks ago, the embattled law firm, whose shares traded at over $7.80 just two years ago, is rumoured to be tabling a deal with its creditors in a bid to shore up its balance sheet.
According to Fairfax Media, the company's creditors are being offered a deal which will see their $700 million in debt swapped for shares. The company's creditors include National Australia Bank Ltd. (ASX: NAB), Westpac Banking Corp (ASX: WBC) and a distressed debt investor, which is believed to have bought the debt for 40 cents in the dollar.
In my opinion, such a deal will be difficult to achieve, especially if the distressed debt buyer would prefer to take the company into administration and gain control of some assets. However, doing so could mean that even they are left with less than their initial investment.
According to Fairfax, Westpac and NAB's Slater and Gordon debt pile could be worth less than 30 cents in the dollar.
At the moment, the entirety of the company's shares is worth less than $31 million.
However, as speculation swirls that lawyers are refusing to do business with Slater & Gordon without being paid upfront, that $31 million may promptly go to zero if cash flow becomes an issue.
Foolish Takeaway
In the event that Slater & Gordon falls into administration, shareholders rank lower than debt holders. That means, if it did come to that (which is a very real possibility), it is possible that shareholders will be left with nothing. If the debt-for-equity deal goes through, however, they may be left with shares worth just a few cents.
If that's the case, the current share price might be the best one shareholders are offered.
