Slater & Gordon Limited updates on legal battle

Credit: Patrick McKnight

Indebted law firm Slater & Gordon Limited (ASX: SGH) this morning announced a market update related to what it called the “Delaney Application” against it brought by ACA Lawyers in the Federal Court. The claim is related to another similar claim, with Slater & Gordon currently in a race against time to restructure its ownership profile and debt mountain under a scheme of arrangement.

The law firm recently had the majority of its around $750 million debt pile sold on by banks like National Australia Bank Ltd (ASX: NAB) to U.S. based distressed debt, private equity, and corporate restructure specialists such as Anchorage Capital.

Having bought the debt for as little as 25% or 30% of its nominal value firms like Anchorage are now looking to write it off in exchange for taking near total equity ownership in the business in a standard debt-for-equity swap that is the signature play of these turnaround specialists.

Agreements like this can work for both parties as Slater & Gordon is relieved of much of its debt burden and restructured to dump its worst loss-making businesses. While the private equity owners essentially gain near total ownership of a business on the cheap, with profit-making potential and little debt.

There are some potential losers from the deal though.

Existing shareholders who could be all but wiped out by the restructure given the company’s net debt now stands at more than 20x the worth of its outstanding scrip.

While shareholders seeking to bring a claim against the company under a class action for breaches of the general financial services laws after its disastrous acquisition of Qunidell in 2015 may also reportedly be left high and dry.

Both ACA Lawyers and Maurice Blackburn are currently chasing class actions against Slater & Gordon and there’s little doubt its new private equity owners will be trying every trick in the book to eviscerate the potentially giant claims under the restructure deal.

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

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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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