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Why the Slater & Gordon Limited share price is sinking again

Things aren’t getting any better for investors in Slater & Gordon Limited (ASX: SGH) with the shares down 2% to 9.5 cents on Friday afternoon and down 28% over the past month.

The share price has been sliding over the last month after the law firm announced most of its giant debt pile had been sold on by creditor banks such as Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB) to distressed debt and private capital specialists mainly headquartered in the US.

As a result the company’s new senior lenders have reportedly agreed to allow Slater & Gordon “to incur new senior debt of up to $40 million from one or more of the new senior lenders” under the terms of a re-negotiated syndicated senior lending facility.

At the time of the most recent announcement on March 28 the personal injury law firm also advised the market that: ”The Company expects that discussion with its New Senior Lenders will be successfully concluded in the next few weeks, at which time a further announcement to the market will be made”.

More than four weeks later, Slater & Gordon has yet to provide an update to the market as to its route forward as a going concern and investors are getting nervous as to the road ahead.

That’s not surprising given that the company’s debt to equity ratio as it stands is unworkable, with a general expectation that any new deal which sees its new creditors write off some debt in exchange for new equity could leave current shareholders all but wiped out.

As such I would suggest investors steer well clear of Slater & Gordon shares and if I were a shareholder I would probably look to take what I can get now. Of course only time will tell, but given its debt mountain and operating performance it looks like there could be more pain ahead for Slater & Gordon’s unfortunate shareholders.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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