Specialist medical lien funder LawFinance completed a restructure and refinancing of its business in May, when shareholders approved a debt-to-equity swap, an equity issue and a new debt facility. But the company is not out of trouble yet.
The company’s half-year financial report includes a statement from auditor Stantons, saying there is material uncertainty regarding the company’s ability to continue as a going concern.
LawFinance’s problems go back to 2016 and 2018, when it geared up to make acquisitions. Those acquisitions have not performed and the company struggled to stay on top of its repayments on around US$100 million of debt.
Its big acquisition was National Health Finance, a US medical financier. NHF provides funding for the victims of motor vehicle accidents by facilitating access to medical care.
NHF purchases a lien or obtains a letter of protection over medical receivables associated with personal injury cases from healthcare providers and hospitals. The return to NHF is realised upon payment by the at-fault party or their insurer upon conclusion of personal injury litigation.
LawFinance said that during the June half-year NHF collections were impacted by COVID, with settlements delayed or scaled back. Its cases were delayed by disruptions in the US court system.
In an independent expert’s report accompanying its restructuring proposal, Grant Thornton said LawFinance may have made a bad buy, with the purchase price of the NHF receivables book probably above market value and with funding of the business “sub-optimally structured”.
As part of its restructure, the company exited its two other business activities – litigation funding and disbursement funding.
After making big write-downs of financial assets and goodwill, the 2020 balance sheet showed a deficiency of net assets of US$48 million.
For the half-year to June the net asset deficiency was down to US$3.4 million.
The company made a loss of US$13.8 million. It said the loss was partly attributable to high interest costs, which will be much lower in future, thanks to the restructure.
The NHF business did not produce any revenue during the half. LawFinance said that with the restructure out of the way its focus in on rebuilding NHF’s business relationships.
The auditors’ report said the success of this rebuilding would be critical to the survival of the business.
“The ability of the consolidated entity to continue as a going concern is subject to collecting its outstanding medical lien receivables books in accordance with its budgeted cashflows. In the event that the consolidated entity does not successfully collect its outstanding medical lien books, the consolidated entity may not be able to meet its liabilities as and when they fall due,” the auditors said.