Hedge funds swoop on Slater & Gordon

Stricken law firm Slater & Gordon will be effectively owned by a consortium of hedge funds led by Anchorage Capital.

Stricken law firm Slater & Gordon will be effectively owned by a consortium of hedge funds led by Anchorage Capital Partners in a debt-for-equity deal that wipes out the holdings of existing shareholders.

Anchorage and a clutch of other hedge funds have swapped debt they snapped up at a steep discount to its $750 million face value for 95 per cent of Slater & Gordon’s equity.

Under the proposal, first floated in June and signed off by Slater & Gordon’s board on Thursday night, existing shareholders will hold the remaining 5 per cent of the company. Shareholders will need to approve the deal at an investor meeting in November.

The move came as Slater & Gordon posted a loss of $546.8 million for the past financial year, coming on the back of the previous years impairment-heavy loss of $1.01bn.

The latest result was hit by $361 million worth of write downs, mostly linked to taking a knife to goodwill on the UK business during the first half. Revenue across the business slumped 30 per cent to $653 million.

The hedge funds will increase Slater & Gordon’s existing $40m debt facility to $90m. As part of the plan Slater & Gordon will spin off its troubled UK business, from the profitable Australian operations. The hedge funds will own the UK business under a separate holding.

John Skippen

Slater & Gordon chairman John Skippen said the recapitalisation plan was the best opportunity to secure the future of the firm and its clients and employees.

“The recapitalisation agreement and the additional funding which the company’s lenders have agreed to provide...will permanently reduce Slater & Gordon’s debt to a sustainable level and is intended to provide a stable platform for the future operations of the company,” Mr Skippen said.

However he apologised to existing shareholders that stand to be wiped out.

“Regrettably the interests of the existing shareholders will be wiped out and for that I and the board are deeply sorry for this,” he said.

Long serving chief executive Andrew Grech stepped down from the company in June, in conjunction with a broader clean-out of the board. The company’s chief financial officer Bryce Houghton stepped down earlier today.

The hedge funds also stand to gain any proceeds from a lawsuit over the disastrous deal that sent Slater & Gordon’s stock into free fall and the company into a debt crisis: the 2015 purchase of a division of allegedly fraudulent British company Quindell.

The hedge funds mostly paid less than 30c in the dollar in May when they bought S&G’s debt from Australian lenders led by Westpac and NAB, which had little appetite for owning a law firm that frequently acts against the big end of town.

As well as Anchorage, other funds behind the plan include Davidson Kempner, out of Hong Kong, and US funds York Capital Management, Taconic Capital and River Birch Capital.

Slater & Gordon shares were worth as much as $7.85 before the calamitous transaction but last traded at about 8c.