Litigation and disbursement funder LawFinance has organised a debt-to-equity swap with its lenders that will see it clear A$55 million of debt from its balance sheet.
An independent expert’s report on the transaction says LawFinance needs to restructure to overcome problems with its lending arrangements and to kick-start its underperforming business.
The company announced yesterday that it is also raising $17 million of new equity capital and has secured a new $3 million debt facility at a lower interest rate than its current facility. Shareholders will meet at the end of May to approve the restructure.
LawFinance chief executive Daniel Kleijn said in a statement that the company would focus on opportunities in the US market, which it has a medical receivables funding business.
The company made acquisitions in 2016 and 2018 and has been struggling with a debt burden of more than US$100 million since.
In the year to December 2020 it made a loss of US$79.5 million, following a loss US$22.7 million in 2019.
After making big write-downs of financial assets and goodwill, the 2020 balance sheet showed a deficiency of net assets of US$48 million.
In January, it announced the sale of its local litigation funding business JustKapital Litigation to Legal Equity Partners, saying it was “not in a strong enough capital position to constructively remain in and grow the litigation funding business”.
It retained JustKapital Finance, a disbursement funding business. And it owns National Health Finance, a US medical receivables funding business.
An independent expert’s report on the restructure prepared by Grant Thornton said that after the restructure the company will still have debt of A$20.8 million and a cash balance of around A$15 million.
The company has breached loan covenants with two of its lenders and is in default on another facility. Those facilities are in standstill agreements pending the outcome of the restructure.
Grant Thornton said: “The company has no ability to grow its business in the absence of the proposed restructure and the existing business is not performing.”
Grant Thornton also said LawFinance may have made a bad buy when it acquired National Health Finance in 2018, with the purchase price of the receivables book probably above market value and with funding of the business “sub-optimally structured”.
Despite this, Kleijn is upbeat, saying NHF operates in a “fundamentally attractive sector” and LawFinance aims to be “America’s leading medical financier.”