Investors have slammed shares in troubled law firm Slater and Gordon after it pitched a life-saving debt for equity swap to its bankers and revealed its trading performance was weaker than expected.
The stock fell as much as 30 per cent to 18.5¢ on the back of the news before recovering some ground to be 22 per cent lower at 21¢ by early afternoon.
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ASIC investigating Slater & Gordon
The corporate watchdog is investigating whether the law firm deliberately falsified or manipulated financial records and accounts. Video courtesy ABC News 24.
BusinessDay understands the initial deal put forward by Arnold Bloch Leibler and investment bank Moelis has not yet won over the group's bankers, but talks are continuing.
Sources said the deal had been structured in a way to snuff out the impact of a $100 million-plus class action by restricting the assets that can been called upon in a settlement or court-awarded damages claims to the company's insurance.
Slater and Gordon confirmed on Thursday morning weeks long speculation that it was working with its lenders on a recapitalisation plan.
The plan is expected to take the shape of a debt for equity swap that would see its lenders take up shares in the entity, which has been financially struggling for more than a year.
Slater and Gordon also said revenue from its Australian business, previously the highlight of its weakening results, was lower than expected for the first half of 2017.
"Slater and Gordon's Australian business has more recently started to show signs of being impacted by negative sentiment about the business and increase competition in key segments," the company said in a statement to the Australian Securities Exchange.
It also said earnings from its UK business were lower than expected.
Still, the company said its first-half normalised earnings and cash from operations from its UK arm would be an improvement on the prior corresponding half.
"The company is projecting stronger billed revenue results in the second half of 2017 as it continues its UK performance transformation program," the company said.
Slater and Gordon has been in financial trouble since midway through 2015, when accounting issues were discovered shortly after its $1 billion purchase of the professional services arm Quindell.
Since the disastrous acquisition, Slater and Gordon's share price has fallen from more than $8 to 27¢.
More to come