Slater & Gordon’s debt sold to hedge funds at 80pc discount

The troubled law firm’s $730m debt held was offloaded to hedge funds for $146m.

Andrew Grech, managing director of Slater & Gordon. Picture: Britta Campion

Westpac and National Australia Bank will be forced to make major writedowns, after Slater & Gordon’s debt sold for just 20c in the dollar.

The troubled law firm’s $730 million debt held by its lending syndicate was offloaded to domestic and international hedge funds for $146m.

The long-awaited auction-style process was carried out by investment bank Moelis and law firm Arnold Bloch Leibler, which have been working on a corporate restructure in recent months.

It is understood that Westpac held about $230m of the Slater debt, NAB had about $200m and the rest was split between Barclays and Royal Bank of Scotland.

Westpac and NAB had already raised provisions for the Slater crisis.

The local banks were especially keen to sell the debt and reject an equity deal because of the high capital charges APRA enforces on equity stakes.

The banks also did not want to own a direct stake in a law firm renowned for legal actions against financial services firms.

The debt restructure prompted Slater shares to rise 4c to 13c. At their peak the shares were worth more than $8, valuing the firm at more than $2.7 billion.

In a statement yesterday, the law firm said 6 per cent of the total debt was unsold but the hedge fund buyers, which are considered the firm’s new lenders, were keen for Slater to continue ­operation.

“The company has been informed by the new senior lenders that they fully intend to implement a solvent restructure of the company … to ensure that the company has a sustainable level of debt and a stable platform of its future operations in both Australia and the UK,” Slater said.

The restructure will result in a debt-for-equity swap which means existing shareholders will essentially be wiped out.

Morningstar’s Gareth James has a fair value estimate for the company’s shares of just 1 cent.

“Aside from an urgent need to improve the performance of the business, management also have their hands full with the investigation by ASIC, defending the class action and litigation with Watchstone Group,” Mr James wrote last month.

“Considering the lack of progress with the turnaround of the UK business and deterioration of the Australian business, the turnaround plan appears to be making insufficient progress to salvage any value for equity holders.”

Slater & Gordon struck trouble after buying the Quindell professional services division in a 2015 deal worth $1.23bn, writing down $814.2m from the business, since rebranded as Slater & Gordon Solutions.

The firm recorded a 2017 first half loss of $425.1m. Though bleak, the result was an improvement on the $958.34m loss of the previous first half.

Additional reporting: Daniel Palmer