[1]Grech: strong level of support
Slater & Gordon saw its share price double yesterday after its banks gave the alternative business structure breathing space to turn the business around.
The firm said it considered the lenders’ agreement to change the terms of its borrowing to be “a positive and clear endorsement of the company’s performance improvement program” (sic) – which is to include office closures and redundancies.
The share price, which closed last week on the Australian Stock Exchange near its all-time low of 29c, reached 59c on the back of the news. But it is still a shadow of the A$8 that was recorded in early 2015.
In February, S&G unveiled a loss of £493m [2] for the six months ending 31 December 2015. Its debt increased 19% to £381m, and the company had to deliver an operating plan and restructure proposal to its banking syndicate; if no agreement had been reached, the debt could have been called in on 31 March 2017.
In an announcement to the stock exchange, S&G said it now has a bank facility of £420m. Under the amended syndicated facility agreement, £240m of it matures in May 2018, with the rest in March 2019. This enables “the full expected benefits from the performance improvement program to be realised ahead of future refinancing”, S&G said.
The facilities are structured as term loans – which Australian reports said made it easier to sell on the debt to third parties – with S&G “maintaining a prudent level of liquidity for working capital purposes”.
Though the terms are “substantially the same”, among the changes are increased frequency of reporting to lenders and no dividends being declared or paid.
The firm has to pay the lenders to make these changes – with reports estimating that this could cost as much as £10m – but the banks can accept ‘warrants’ in lieu of the fees so as not to eat up the firm’s cash. These warrants will convert to equity if the share price gains materially. However, fewer than 45% of the lenders are expected to do this, S&G said.
S&G managing director Andrew Grech said: “We are both very pleased and grateful for the strong level of support that we have received from our lending group.
“We remain focused as a management team on executing our performance improvement program across the business to improve profitability and cash flow, and reduce debt. We are confident that the amendments we have entered into with our lending group provide us with the flexibility and time to execute and continue our performance improvement program.”